SB 0500 - Fiscal Note

Fiscal Note - SB 0500 - Various modifications to the Public School Retirement System

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 2148-05

BILL NO. SB 500

SUBJECT: Retirement: Schools

TYPE: Original

DATE: January 13, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue *	$0 or ($9,142,208)	$0	$0
Total Estimated Net Effect on All State Funds *	$0 or ($9,142,208)	$0	$0

* Depends on applicability of Article X, Section 21 of the Missouri constitution.

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None	$0	$0	$0
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
School Districts *	$0 or ($9,142,208)	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Joint Committee on Public Employee Retirement have reviewed this proposal and have determined that it represents a "substantial proposed change" in future plan benefits as defined in section 105.660(5). Therefore, an actuarial cost statement must be provided prior to final action by either legislative body or committee thereof.

Officials of the Office of Administration assume that the proposal could have substantial impact that would be determined through an actuarial cost study.

Officials of the Public School Retirement System (PSRS) requested an actuarial cost analysis of the provisions in this legislation. Officials indicate that several provisions in the legislation would result in additional liabilities to the system as follows: increasing the benefit multiplier from 2.3% to 2.5%; extending the 25-and-out window two years; an across-the-board 8.7% increase in monthly benefits; extending the cost-of-living adjustments (COLA's) to survivors; providing for COLA's effective the third January after retirement as opposed to the fourth January after retirement as in current law; increasing prospectively the minimum and maximum benefits for survivors; and, extending an additional $2 per year of service per month to survivors. The actuarial cost analysis indicates that the total cost of these benefit improvements will result in an unfunded accrued actuarial liability of $18,284,415. As of June 30, 1997 the teachers' retirement system is in a surplus position, with an approximate surplus of $701,000,000. Therefore, the actual costs of this proposal are estimated at over $719,000,000. At the current contribution rate for both members and school districts of 10.5%, the period required to amortize the liability resulting from this legislation would be 0.9 years. Statutes allow the board of trustees of the system to extend the amortization period to a maximum of 30 years. Officials indicate that the costs of this proposal would not result in an increase to the contribution rate assessed to members and school districts.

Oversight calculated what approximate annual costs would be to local school districts if the system were not in a surplus position and the total costs were to be passed on to the districts. Based on a statutory maximum 30-year amortization period, an assumed interest rate of 8%, and total costs of approximately $719 million, annual costs to the school districts would be approximately $32 million. However, since the system is in a surplus position, a liability of $18,284,415 would need to be amortized over a period of less than one year in order to maintain the districts' current contribution rate. Therefore, for fiscal note purposes, Oversight has reflected costs of $9,142,208 to local school districts (which pay one-half of annual contributions) for FY 1999 since the proposal has an effective date of July 1, 1998.

ASSUMPTION (continued)

Oversight has also reflected potential costs to the state as a result of the possible applicability of Article X, Section 21 of the Missouri constitution.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
GENERAL REVENUE FUND
Costs-possible reimbursements to school	$0 or	$0	$0
districts *	($9,142,208)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
LOCAL SCHOOL DISTRICTS
	$0 or	$0	$0
Costs-increased retirement contributions *	($9,142,208)

*Depends on applicability of Article X, Section 21 of the Missouri constitution.

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

The proposal would revise several provisions within the teachers' retirement system of the Public School Retirement System of Missouri. The proposal would increase the benefit multiplier from 2.3% of the members' final average salary for each year of service to 2.5%. Eligibility for cost-of-living adjustments (COLA) would be changed from the fourth January after retirement to the third January after retirement. Changes to survivor benefits include extending minimum benefits based on years of service to survivors, adding to survivors' monthly annuities a dollar amount equal to the lesser of $60 or $2 multiplied by the members' years of creditable service, and increasing the dollar amounts for minimum and maximum monthly benefits for certain surviving spouses and children of deceased members. The proposal would also make an adjustment equivalent to 8.7% of the retirees' or survivors' last monthly annuity, which is not applied to the COLA limit.

The proposal has an emergency clause and is to be effective on the date signed by the Governor or July 1, 1998, whichever occurs later.

DESCRIPTION (continued)

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Joint Committee on Public Employee Retirement

Office of Administration

Public School Retirement System

Jeanne Jarrett, CPA

Director

January 13, 1998